ANNUAL REPORTfiles.investis.com/pci/pdf/ar-2007.pdfoil and gas companies, including Enterprise Oil,...
Transcript of ANNUAL REPORTfiles.investis.com/pci/pdf/ar-2007.pdfoil and gas companies, including Enterprise Oil,...
A N N U A L R E P O R T
Contents
2 Company Profile
3 Corporate Information
4 Company Directors
6 Chairman’s Statement
8 Operational Locations
9 Chief Executive’s Review
18 Report of the Directors
24 Independent Auditor’s Report
26 Statement of Accounting Policies
31 Consolidated Income Statement
32 Consolidated and Company Statements of Recognised Income and Expense
33 Consolidated Balance Sheet
34 Company Balance Sheet
35 Consolidated Cash Flow Statement
36 Company Cash Flow Statement
37 Notes to the Financial Statements
55 Share Information
A N N U A L R E P O R T
�
Company Profile
Petroceltic International PLC is an independent international oil and gas
exploration, development and production company, operating principally
in North Africa and Italy. Petroceltic’s strategy is to achieve superior growth
in shareholder value through acreage acquisition, exploration and appraisal,
with a geographical focus on North Africa, the Mediterranean basin and the
Middle East. The Company’s shares are listed on the Alternative Investment
Market (“AIM”) of the London Stock Exchange (PCI.L) and on the IEX Market
of the Irish Stock Exchange.
The Company does not yet generate revenue from its ongoing operations,
because its activities in Italy and North Africa are in the exploration and
appraisal phase. Income is generated from interest on Company funds held
on deposit, and from the overriding royalty interest which the Company
holds on the revenue from the Kinsale Head Gas Field in the Celtic Sea.
�
Corporate Information
Directors
B. O’Cathain, Executive Chairman †
J. Craven, Chief Executive
A. Bostock, Non-Executive *^
C. Casey, Non-Executive *^†
C. Schaffalitzky, Non-Executive *^†
* Member of the Audit Committee.
^ Member of the Remuneration Committee. † Member of the Nominations Committee.
Registered Office
Styne House
Upper Hatch Street
Dublin �
Ireland
Telephone: +�5� 1 4�18�00
Fax: +�5� 1 4�18�01
Email: [email protected]
Web: www.petroceltic.com
Company Number: 101176
Secretary
C. Casey, FCCA
Auditors
KPMG
1 Stokes Place
St. Stephen’s Green
Dublin �
Bankers
Anglo Irish Bank
Stephen Court
St. Stephen’s Green
Dublin �
Solicitors
McCann Fitzgerald Solicitors
Riverside One
Sir John Rogerson’s Quay
Dublin �
Stockbrokers
J & E Davy
Davy House
49 Dawson Street
Dublin �
Mirabaud
�1 St. James’s Square
London SW1Y 4JP
Registrar and Transfer Office
Computershare Investor Services (Ireland) Ltd.
Heron House
Corrig Road
Sandyford Industrial Estate
Dublin 18
4
Company Directors
Brian O’Cathain (48) Executive Chairman
Mr O’Cathain is a geologist and petroleum engineer with �4
years’ experience in senior technical and commercial roles in
upstream oil and gas exploration and production companies,
including Shell International, Enterprise Oil and Tullow Oil
plc. He has experience in working in West Africa, North
Africa, onshore Europe, the North Sea, the Gulf of Mexico,
South Asia and offshore Ireland. He was formerly Chief
Executive of AIM-listed Afren plc.
As Executive Chairman, Brian is responsible for leadership of
the Board and ensuring Board effectiveness in conformity
with corporate governance. He also ensures effective
communication with shareholders and provides long-term
vision and objectives for the Company. Brian chairs the
nominations committee to ensure an effective and
complementary Board, initiating change and planning
succession on Board and Group executive appointments.
Brian ensures that all Board committees are properly
established, composed and operated.
John Craven (58) Chief Executive and Managing Director
Mr Craven has over �0 years’ experience in the Upstream Oil
and Gas Industry with Executive and Senior Management
positions in Majors and Independents, including Gulf Oil,
Dana Petroleum and Vanco Energy. His experience includes
the North Sea, offshore Ireland, onshore Europe, North Africa
and West Africa. John is a co-founder of Petroceltic
International plc.
As Chief Executive, John is responsible for leadership and
management of the business and provides executive
stewardship of the Company. John develops the strategy and
annual plan for the Company, he ensures that capital
investment proposals are reviewed thoroughly and that
associated risks are managed. John is responsible for human
resources and leads the executive team. He also has prime
responsibility for all operational matters and leads the
Company on a daily basis.
5
Con Casey (47) Company Secretary and Non-Executive Director
Mr Casey is a Chartered Certified Accountant,
Managing Partner of LHM Casey McGrath
and a member of the Board of Petroceltic
International Plc since October �000. He
has over �5 years’ experience in advising
companies in the natural resources sector
as well as acting as adviser to a number of
publicly quoted companies and semi-state
organisations and specialises in the area of
corporate finance.
As Company Secretary, Con is responsible
for ensuring that the Company complies
with relevant legislation and regulation and
keeps Board members informed of their legal
responsibilities. It is also his responsibility
to maintain all Company records. As Non-
Executive Director, he monitors the executive
activity and contributes to the development
of strategy. Con is a member of the
remuneration committee, the nominations
committee and the audit committee.
Christian Schaffalitzky (54) Non-Executive Director
Mr Schaffalitzky is an experienced and
successful minerals geologist with strong
international profile and long experience in
managing exploration companies. He was
a co-founder of the CSA Group of companies,
Ireland’s leading natural resource consultancy
practice in the minerals, energy and
environmental sectors. Mr Schaffalitzky is
currently the Managing Director of the
AIM-listed Eurasia Mining plc and serves as
an independent director of Raspadskaya
Coal Company and Chelyabinsk Zinc Plant,
both public Russian companies.
As a Non-Executive Director, Christian
monitors the executive activity and
contributes to the development of strategy.
Christian is a member of the remuneration
committee, the nominations committee
and the audit committee.
Andrew Bostock (45) Non-Executive Director
Mr Bostock is a Petroleum Engineer with
�� years of operational, technical and
commercial experience in upstream oil and
gas, latterly as the Technical Director of
Dana Petroleum plc, a position he held
until June �006. After beginning his career
with Shell International, he progressed
through increasingly senior technical and
commercial roles in a number of independent
oil and gas companies, including Enterprise
Oil, Talisman Energy and Venture Production
before being appointed to the Board of
Dana in �001. He is currently Chairman of
Purepower Group Limited, a privately
owned renewable energy company.
As the senior independent Non-Executive
Director, Andrew provides independent
views on resources, appointments and
standards of conduct. He also monitors the
executive activity and contributes to the
development of strategy. Andrew is a
member of the remuneration committee
and the audit committee.
6
Chairman’s Statement
Since my last statement to shareholders, the Company has
made significant progress in its objective of building a
significant exploration and production business in both major
areas of focus, North Africa and Italy.
These two prolific petroleum provinces both have the potential
to add significant discoveries and reserves. These areas are on
the doorstep of Europe where increasing focus on security of
supply and heightened demand for ownership of equity gas
amongst utilities has increased the competition for and
attractiveness of good hydrocarbon portfolios. This provides
real opportunity for Petroceltic.
Our business model is focused on the acquisition of good
quality acreage in areas of proven oil and gas, the development
of drillable prospects through the application of our exploration
skills, and the addition of step-change value through the drill
bit in exploration and appraisal. We seek to mitigate risk by
taking partners from the industry or through strategic alliances
where appropriate.
The current climate for small market capitalisation exploration
and production companies is challenging. Hydrocarbon prices
are at record highs, but drilling and seismic costs have increased
to record levels also, and there is a very competitive and scarce
market for equipment and people.
The exploration and production industry is prone to cyclical
activity. The advent of the current period of high commodity
prices, combined with the worldwide decline in liquidity
following the “sub-prime” crisis of �007 has led to a period
when the capital required for investment in oil and gas
exploration and production is more readily available from the
industry than from the traditional sources of investment. The
Company has invested serious time and energy in developing
its industry profile and relationships over the past year.
It is the primary strategic objective of the Board to seek to
create the most value for all of our shareholders over the long
term. The benefits of fostering industry relationships which
this strategy requires may not always be obvious in the short
term; this has been reflected in our recent share price
performance. However, we are confident that our current
efforts are laying solid foundations for a period of significant
growth in shareholder value in the near future.
We are now poised for a period of investment in drilling and
proving up reserves, where we believe that the value in our
portfolio will be demonstrated.
Typical terrain in the Isarene Block, Illizi Basin.
7 P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
It is also the Company’s intention to complement our organic
growth programme by pursuing both corporate and asset
acquisition opportunities. High oil prices have led to a seller’s
market in the international oil industry, but for experienced
technical and financial teams such as Petroceltic’s with detailed
technical knowledge, good regional contracts and advisors
and strong commercial partners, the opportunity to create
value through acquisition still exists. The Board will look carefully
at all opportunities which arise in our area of focus, seeking
always to maximise shareholder value and the potential upside.
The results of Petroceltic International plc have been prepared
this year for the first time in accordance with International
Financial Reporting Standards (“IFRS”). As a result last year’s
comparative figures have been restated. The accounting
policies adopted and the impact of the move to IFRS for the
comparative financial statements, including quantification of
the main accounting differences, are set out in the attached
financial statements. These changes provide considerably more
detail than required before, and result in a longer annual
report, which I hope that you will find more useful.
On behalf of the Board of Directors, I would like to thank the
Company’s shareholders for their continued support over the
past year. I have personally spoken to many of you over the
year, and I understand that you have been patient while we
put our industry partnerships in place. I look forward to
rewarding your patience with a year of more operational
progress over the coming twelve months.
In summary, we have an exciting year of technical work
and operational activity ahead of us. The stage is set for an
active and exciting drilling campaign, and I confidently expect
to see our Company making even greater strides during the
coming year.
On behalf of the Board of Directors,
Brian O’Cathain
Chairman
�7 June �008
Isarene �D seismic acquisition, vibro-seismic truck in action.
8
Operational Locations
IrelandKINSALE HEAD
GAS ROYALTY
ItalySICILY
CENTRAL ADRIATIC
PO VALLEY
TunisiaKSAR HADADA PERMIT
AlgeriaISARENE PERMIT
9
Chief Executive’s Review [Algeria]
�007 was a very active year for Petroceltic in which we have
prepared the groundwork in terms of new seismic acquisition
and new licenses necessary to form the basis of an active
drilling programme which in Algeria is planned to commence
in late �008 or early �009.
ALGERIA
Illizi Basin Isarene PSC (Blocks 228/229A) Petroceltic 75% Interest
Highlights
n 4 appraisal areas and 1 exploration area identified for
further drilling
n Commenced � D seismic acquisition and processing over
the Ain Tsila Ridge
n Nearby discoveries on adjacent permits – extending in to Isarene
n Successful entry in to second exploration period
n Tenders issued for drilling rigs and related services for 7 wells.
In Algeria, we initiated the acquisition of the Company’s
largest ever 3D seismic survey, which covers 850 sq. km.
over the Ain Tsila Ridge Ordovician prospect, and re-
processed 1,500 km of 2D seismic on our acreage. The 3D
acquisition programme is now over 75% complete at the
time of writing, and I am very pleased to report that to
date the field operations have been carried out safely
and professionally, with no significant injuries or lost
time incidents. The initial results from the early field
seismic processing look very encouraging, and we look
forward to firming up our inventory of drilling targets on
this very prospective Isarene licence.
ALGERIA
MOROCCO TUNISIA
LIBYA
SPAIN
FRANCEITALY
PORTUGAL
AlgiersTrans-
MediterraneanPipeline
ProposedGalsi
PipelineProposedMedGazPipelineMaghreb-
EuropePipeline
HassiR’mel
HassiMessaoud
Petroceltic’sIsarene
Permit Area
Algiers
10
Petroceltic has identified five highly prospective areas namely
the Ain Tsila Ridge, Issaouane South (ISAS), Issaouane NW
(INW), Hassi Tab Tab (HTT) and SW Isarene following an
extensive review of all reprocessed seismic, well and geological
information, including well test and core data. These project
areas will be the focus of drilling and other necessary work to
progress towards commercialisation of potential hydrocarbon
resources. Four of these project areas already have existing
discoveries made by Petroceltic and previous operators and
hence are considered appraisal areas. The other remaining
prospect is SW Isarene which is an oil exploration target.
The Ain Tsila Ridge
This is the largest prospect in the Isarene permit area. It is a
north plunging structural high extending some 70 kms from
south to north. Petroceltic is the first foreign company to have
a permit over the whole of the ridge area, and consequently
the opportunity to explore this feature as a single entity.
Previous operators have drilled 5 wells on or just outside
structural closure on this prospect. In these wells, drilled some
40 years ago, the target Ordovician sandstone reservoir was
gas saturated but only flowed gas at moderate rates due in
part to the location of the wells mainly outside optimal
structural closure but also the quality of the Ordovician
reservoir.
In the Illizi Basin Ordovician sandstones are the most important
reservoirs in terms of hydrocarbon volumes. The key to success
is to identify areas of high quality reservoir and increasingly
operators are using state of the art wide azimuth �D seismic to
mitigate reservoir risk.
Petroceltic’s strategy going forward is to employ the latest
seismic technologies and a key objective of the wide azimuth
�D seismic survey is to identify high permeability sweet spots
in the target Ordovician reservoirs in order to optimise drilling
and well testing procedures. This technique has been successfully
deployed by BP in the appraisal and development of the
adjacent Tiguentourine Field in the Illizi Basin (to the east of
the Isarene Permit) – where average development well flow
rates of 80 mmscf/d from the Ordovician reservoir, have been
reported.
Petroceltic has contracted Global Geophysics to acquire a �D
WAZ seismic survey over the northern part of the ridge and as
of May �008 some 650 square kilometres of data has been
acquired. Acquisition of the data is expected to be completed
in August �008 and processing by year end �008. The data
will be used to optimise new drilling locations in terms of
structural position and reservoir quality.
Petroceltic estimates prospective hydrocarbon resources for
the ridge to be in excess of � trillion cubic feet of gas.
ISAS and INW
New mapping utilizing all the wells and newly reprocessed
seismic data over the ISAS structure demonstrates that at the
Devonian F� level it is a gas cap with an oil rim. Three wells
ISAS 1, INE 1 and TMZ 1 all flowed gas whereas the down dip
GTT 1 well flowed oil also from the F� sands. In addition GTTN
1 drilled in adjacent block ��6 flowed gas from this horizon on
the same structure.
In �007 Medex, operator of the adjacent block ��6 and
Petroceltic undertook a joint technical study of the ISAS-INW
area using a common data base. The main conclusions from
this study were that at the F� level the ISAS and INW structures
extend in to both blocks. In �007 Medex drilled a successful
well NIS 1 which tested gas at 7mmscf/d on the INW structure.
Petroceltic plans to drill further wells on the ISAS and INW
structures in �009.
HTT
Following the successful drilling of Petroceltic’s HTT � discovery
well the HTT structure is being remapped using newly
reprocessed seismic data. On completion of this work further
appraisal drilling is planned.
SW Isarene
In �007 we completed seismic reprocessing over this prospect
area. Subsequent mapping of this data has identified �
prospects, SW Isarene and El Biod south.
It is planned to conduct further �D seismic acquisition followed
by drilling in �009. Both prospects are considered oil targets
with main reservoir objectives in the Devonian and Ordovician.
Chief Executive’s Review [Algeria]
11
Successful Entry in to the Second Exploration Period
Petroceltic received approval to enter the second exploration
period in the Isarene PSC. The second period officially
commenced on �6 April �008 and is in force for two years
until �5 April �010. After this time discoveries can be retained
for appraisal, development and production.
Petroceltic has retained 70 per cent of the original Isarene
Permit area (7,5�0 sq. km) into the second exploration period,
in line with the provisions of the Production Sharing Contract.
The retained area contains all of the prospects and discoveries
previously identified by Petroceltic in the permit area.
Future Plans
Petroceltic has issued tender documents for a minimum of
seven exploration and appraisal wells. Drilling of these wells is
planned for the Ain Tsila Ridge and the other discovery areas
mentioned above. Our programme is aimed at commercialisation
of all prospective discovery areas before the end of the second
exploration period in April �010.
RelinquishedPermit Area
Hassi Tabtab
PCI Isarene PermitPCI Isarene Permit
TotalTin Fouye -Tabankort
BPTiguentourine
IssaouaneNW
IssaouaneSud
3D Seismic Survey
Couloir
AinTsila
Irrarrarren East
SW Isarene
El BiodSouth
CouloirNord
Irrarrarren
40 km
Oil Pipeline
Gas Pipeline
Well – Dry & Abandoned
Well – Gas or Gas Shows
Well – Oil or Oil Shows
Devonian Prospects
Ordovician Prospects
Petroceltic’s Isarene Permit, Illizi Basin
RelinquishedPermit Area
Hassi Tabtab
PCI Isarene PermitPCI Isarene Permit
TotalTin Fouye -Tabankort
BPTiguentourine
IssaouaneNW
IssaouaneSud
3D Seismic Survey
Couloir
AinTsila
Irrarrarren East
SW Isarene
El BiodSouth
CouloirNord
Irrarrarren
40 km
Oil Pipeline
Gas Pipeline
Well – Dry & Abandoned
Well – Gas or Gas Shows
Well – Oil or Oil Shows
Devonian Prospects
Ordovician Prospects
Algiers
1�
ITALY
Italy is a good place to do business. The fiscal terms are
very favourable with a simple tax and royalty regime.
Entry costs are low, there is a well developed infrastructure
and producers enjoy high oil and gas prices. Against this
background I am pleased to report that in 2007 Petroceltic
made significant progress in Italy by acquiring new
licences, including a package of onshore permits in the
Po Valley from the BG Group and by generating prospects
in existing permits for future drilling.
In Italy, we have substantially increased our acreage portfolio,
by acquisition in the Po Valley area, and through successful
licence application in the Central Adriatic. We are excited
about possible oil prospects in both of these areas. We are
now working with our partners in firming up drilling locations
and rig slots for the Italian portfolio.
Chief Executive’s Review [Italy]
Tunis
BOSNIA &HERZEGOVINA
ITALY
CROATIA
HUNGARY
SLOVENIA
AUSTRIASWITZERLAND
TUNISIA
SERBIA& MONT.
ALBANIA
Palermo
Rome
Genoa
Turin
Milan
AdriaticInterests
Sicily ChannelInterests
Po ValleyInterests
PCI Existing Blocks
PCI Permit Applications
Petroceltic’s Italian Portfolio
1�
BR 268 RG (Elsa) Petroceltic 40% Interest
This block contains the Elsa oil discovery. Seismic data over the
discovery has been obtained from ENI the previous operator.
This data has been reprocessed and is currently being
mapped.
It is planned to drill a well in this block in late �009 or early
�010. Potential recoverable reserves for Elsa have been
independently estimated to be 18� million barrels.
There is farm-in interest in this block from a number of major
oil and gas companies.
Civitaquana Exploration Permit Petroceltic 35% Interest
In �007 Petroceltic received final ministerial approval for the
Civitaquana exploration permit onshore Italy.
The permit is located in the Marche-Abruzzi Basin of central Italy,
west of the onshore Miglianico oil and gas discovery and close
to Petroceltic’s BR �68 RG Offshore Permit, in the Adriatic Sea.
The block contains several potential oil and gas targets,
including a shallow Pliocene gas play and possible extensions
of the intra-Cretaceous Maiolica formation that yielded light
oil and gas in the nearby Miglianico discovery well, drilled by
ENI in �001.
Petroceltic’s Adriatic Interests
Olivella
Fortana
Trebbiano
Moscatello
Elsa West
Aleatico
Pampanuto
RospoMare
OmbrinaMare
S. StefanoMare
Miglianico ElsaBR268RG
Civitaquana
APULIANPLATFORMMARGIN
Fiume Treste
d500BR d496BR
d495BR
d492BR d493BR
d494BR
d499BR
d505BR
d498BR
d497BR
20 km
Petroceltic’s Existing Permits
Petroceltic’s Permit Applications
Gas Pool
Prospect with Oil Flows
Prospect/Lead
Oil Pool
Well – Dry & Abandoned
Well – Gas or Gas Shows
Well – Oil or Oil Shows
Oil Pipeline
Gas Pipeline
Civitaquana
Cigno-Vallecupa
Fields
Milan
Rome
Olivella
Fortana
Trebbiano
Moscatello
Elsa West
Aleatico
Pampanuto
RospoMare
OmbrinaMare
S. StefanoMare
Miglianico ElsaBR268RG
Civitaquana
APULIANPLATFORMMARGIN
Fiume Treste
d500BR d496BR
d495BR
d492BR d493BR
d494BR
d499BR
d505BR
d498BR
d497BR
20 km
Petroceltic’s Existing Permits
Petroceltic’s Permit Applications
Gas Pool
Prospect with Oil Flows
Prospect/Lead
Oil Pool
Well – Dry & Abandoned
Well – Gas or Gas Shows
Well – Oil or Oil Shows
Oil Pipeline
Gas Pipeline
Civitaquana
Cigno-Vallecupa
Fields
14
Po Valley PermitsIn October �007 Petroceltic acquired a portfolio of acreage
comprising 4 exploration permits from BG Italia. The interests
in these permits vary from 50 per cent to 95 per cent. In
addition, the deal included interests in two exclusive permit
applications, one in the Po Valley and one offshore in the Sicily
Channel in Southern Italy.
These permits, Carisio, Torrente Nure, Casalnoceto and Vercelli
contain an inventory of prospects with estimated unrisked
recoverable resources in excess of 1 TCFe (trillion cubic feet gas
equivalent). Some of these are ready to drill and are well
defined by an extensive � D seismic data base. Also Triassic oil
leads have been recently identified on trend to the nearby ENI
operated Villafortuna oil fields.
Petroceltic’s activity in the Po Valley will focus on the Carissio
and Torrente Nure Licences. In Carissio (Petroceltic Operated,
95% interest) there are two gas prospects well-defined by �D
seismic, Rosso and Arborio. These low-risk prospects are
adjacent to existing gas infrastructure. The Company intends
to mature these to fully-permitted, ready-to-drill prospects
during the year, with drilling planned for �009, subject to rig
availability. There is also a significant Triassic oil lead which will
require further seismic before drilling. In Torrente Nure (ENI
operated, Petroceltic 55% interest) the operator intends to
shoot additional �D seismic, and plans to drill an exploration
well in �009.
Chief Executive’s Review [Italy]
Rosso
Arborio
La Pavona
LowerRobbio
ZemeLomellina
Villanova
VolpedoCarone
Rusti-gazzo
Carini
MignanoDeep
Ottobiano
CARISIO
VERCELLI
CASAL-NOCETO
TORRENTENURE
CS
MILANO
NOVARA
PAVIA
ALESSANDRIA
PIACENZA
MONZA
Villafortuna-Trecate
Gaggiano
Brugherio
Settala Sergnano
Ripalta
Cignone
Corte-maggiore
PontetidoneCasteggio
CaviagaDesana
Oil Pipeline
Gas Pipeline
Planned Pipeline
Gas Pool
Oil Pool
Well – Dry & Abandoned
Well – Gas or Gas Shows
Well – Oil or Oil Shows
Miocene Prospect/Lead
Triassic Prospect/Lead
Permit ApplicationPCI’s Existing Acreage 20 km
Petroceltic’s Po Valley Interests
Rosso
Arborio
La Pavona
LowerRobbio
ZemeLomellina
Villanova
VolpedoCarone
Rusti-gazzo
Carini
MignanoDeep
Ottobiano
CARISIO
VERCELLI
CASAL-NOCETO
TORRENTENURE
CS
MILANO
NOVARA
PAVIA
ALESSANDRIA
PIACENZA
MONZA
Villafortuna-Trecate
Gaggiano
Brugherio
Settala Sergnano
Ripalta
Cignone
Corte-maggiore
PontetidoneCasteggio
CaviagaDesana
Oil Pipeline
Gas Pipeline
Planned Pipeline
Gas Pool
Oil Pool
Well – Dry & Abandoned
Well – Gas or Gas Shows
Well – Oil or Oil Shows
Miocene Prospect/Lead
Triassic Prospect/Lead
Permit ApplicationPCI’s Existing Acreage 20 km
Milan
Rome
15 P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
Included in the BG Italia acquisition are two exclusive permit
applications Case Sparse in the Po Valley and Licata in the Sicily
Channel. A prospect in the Licata application area is similar to
and on trend with the Pande Gas Field which is now being
developed by ENI.
Adriatic Permit Applications Petroceltic 100% Interest
The Gazette of the Ministry of Economic Development,
published in April �007, confirmed that seven new permit
applications in the Central Adriatic offshore were awarded on
an exclusive basis to Petroceltic Elsa Srl (‘Petroceltic’) a wholly
owned subsidiary of Petroceltic International plc.
These exploration permit areas were primarily selected to
access the extension of the proven Elsa-Miglianico oil fairway,
into the Central Adriatic, to the east and southeast of the
existing Petroceltic blocks. They are adjacent to four oil and
gas fields, the Miglianico, Rospo Mare and Ombrino Mare oil
fields and the Santo Stefano Mare Gas field.
Petroceltic will operate the seven exclusive exploration permits
with a 100% working interest. These permit areas, which
cover approximately �,040 sq kms, lie in water depths ranging
from �0 to 150 metres.
The seven exclusive exploration permits are part of an
application for nine permits, in the central Adriatic area,
submitted by Petroceltic in October �006. A decision from the
Ministry regarding the other two applications is expected from
the Ministerial Commission in the coming months.
Since year end Petroceltic has applied for � further permits in
the Adriatic.
Future Plans
We plan to mature existing oil and gas prospects in the Po
Valley for planned drilling in �009/10. In addition, we intend to
farm-out the Adriatic blocks for a carried seismic and drilling
programme commencing in �010.
Italy, land rig drilling in the Po Valley.
16
TUNISIA
Tunisia Petroceltic 57% Interest/Operator
New interpretation of seismic and well data on the Ksar
Hadada permit has yielded positive results with the validation
of a number of Ordovician and Silurian prospects in the
southern part of the block. These prospects have been
enhanced recently by positive drilling results on adjacent
permits where an oil discovery in the Ordovician in the TT�
well, approximately �0 kilometres to the south, has been
announced by the co-venturers in this well.
It was intended to farm-out Tunisia for drilling in late �008.
However this process has been suspended pending the final
results of testing of the TT� well in the adjacent block.
Since year end Petroceltic as operator of the Ksar Hadada
permit has been informed by the Tunisian government that the
application to enter the first renewal period has been approved.
The first renewal period of the permit begins on �0 April �008
and lasts for three years. In line with the Production Sharing
Contract, Petroceltic and its’ co-venturer Independent
Resources have retained 80% of the original Ksar Hadada
permit (5,600 sq. km) into the first renewal period.
Chief Executive’s Review [Tunisia]
PCI Ksar HadadaPermit
PCI Ksar HadadaPermit
40 km
LIBYA
TUNISIA
El BibanEcumed
MakhrougaENI
EzzaouiaEcumed
Oil Pipeline
Gas Pipeline
Planned Pipeline
Silurian Prospect
Oil Pool
Well – Dry & Abandoned
Well – Gas or Gas Shows
Well – Oil or Oil Shows
Ordovician Prospect
Ordovician Prospect w/ shows
TT-2
Kasbah Leguine
Sidi Toui 3
Sidi Toui 1
Oryx
Gazelle
Antelope
RelinquishedPermit Area
South Saleh
Petroceltic’s Ksar Hadada Licence
Tunis
PCI Ksar HadadaPermit
PCI Ksar HadadaPermit
40 km
LIBYA
TUNISIA
El BibanEcumed
MakhrougaENI
EzzaouiaEcumed
Oil Pipeline
Gas Pipeline
Planned Pipeline
Silurian Prospect
Oil Pool
Well – Dry & Abandoned
Well – Gas or Gas Shows
Well – Oil or Oil Shows
Ordovician Prospect
Ordovician Prospect w/ shows
TT-2
Kasbah Leguine
Sidi Toui 3
Sidi Toui 1
Oryx
Gazelle
Antelope
RelinquishedPermit Area
South Saleh
17
IRELAND
Kinsale Gas Royalty
The Marathon operated Kinsale Head, SW Kinsale and
Ballycotton Gas fields continued production in �007 yielding a
net royalty to Petroceltic of $549,000.
Outlook
In �007 we focused on extending the existing portfolio with
additional quality assets in Italy and maturing our exciting
prospects in Algeria, Italy and Tunisia towards the drilling phase.
We are now poised for the most exciting drilling campaign in
the history of the Company, when we will begin to unlock the
value which we believe exists in our portfolio. I would like to
thank the Staff of Petroceltic, and our partners and stakeholders,
for all of their hard work and loyal support in bringing us to
this very exciting period. I am confident that significant value
uplift will be realised for shareholders in the near future.
John Craven
Chief Executive
�7 June �008
Chief Executive’s Review [Ireland]
IRELAND
Petroceltic’sKinsaleRoyalty
Cork
Dublin
Helvick
Ardmore
Kinsale Gas Field (Marathon Gas Storage Project)
Old Head of Kinsale
Ballycotton
Seven HeadsGas Field
Galway
18
Report of the Directors
The Directors submit their report together with the audited
financial statements of Petroceltic International plc (“the
Company”) and its subsidiaries (collectively “the Group”), for
the year ended �1 December �007.
These are the Group’s first consolidated financial statements
prepared in accordance with International Financial Reporting
Standards as adopted by the EU (‘EU IFRS’). The key impacts on
the financial statements arising from the transition to EU IFRS
are set out in detail in Note 19 of the financial statements.
DIRECTORS
The following were the Directors of Petroceltic International
plc – all of whom were in office for the full year except as
stated:
Brian O’Cathain, Executive Chairman, who was appointed on
�4 April �007.
John Craven, Chief Executive.
Con Casey, Non-Executive Director and Company Secretary.
Christian Schaffalitzky, Non-Executive Director.
Andrew Bostock, Non-Executive Director, who was appointed
on �1 June �007.
Brian Cusack, Non-Executive Director, resigned as a Director
on �0 July �007.
See pages 4 to 5 for biographical details of Directors.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the Annual Report
and the Group and Company financial statements, in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and
parent Company financial statements for each financial year.
As required by AIM and IEX rules and as permitted by company
law, the Directors have prepared the Group financial statements
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the EU (EU IFRS) and have elected to
prepare the Company financial statements in accordance with
EU IFRS, as applied in accordance with the provisions of the
Companies Acts, 196� to �006.
The Group and Company financial statements are required by
law and EU IFRS to present fairly the financial position and
performance of the Group; the Companies Acts 196� to �006
provide, in relation to such financial statements, that references in
the relevant part of the Acts to financial statements giving a true
and fair view are references to their achieving a fair presentation.
In preparing each of the Group and Company financial
statements, the Directors are required to:
n select suitable accounting policies and then apply them
consistently;
n make judgements and estimates that are reasonable and
prudent; and
n prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Group
and Company will continue in business.
The Directors are responsible for keeping proper books of
account that disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure
that its financial statements comply with the Companies Acts
196� to �006. They are also responsible for taking such steps
as are reasonably open to them to safeguard the assets of the
Group and Company and to prevent and detect fraud and
other irregularities.
The Directors are also responsible for preparing a Report of the
Directors that complies with the requirements of the Companies
Acts 196� to �006.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the Republic of Ireland
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
GOING CONCERN
The Directors have reviewed budgets, projected cash flows
and other relevant information, and on the basis of this review,
are confident that the Company and the Group will have
adequate financial resources to continue in operational
existence for the foreseeable future. Consequently, the
Directors consider it appropriate to prepare the financial
statements on a going concern basis.
19 P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
GROUP ACTIVITIES AND RESULTS
The Group is involved in oil and gas exploration. In addition,
through a subsidiary undertaking, the Group receives income
from the production of gas from the Group’s interest in certain
Kinsale gas fields.
A loss of US$�,461,000 was recorded for the year (�006: loss
of US$4,795,000). This loss is after a share award cost of
US$1,757,000 as outlined in note 1�. Net assets of the Group
at �1 December �007 amounted to US$70,81�,000 (�006:
US$71,477,000). No dividends or transfers to reserves are
proposed.
Details of the state of the Group’s affairs; the development of
its various activities and key performance indicators during the
year; and details of the Group’s plans for �008 are given on
pages 6 to 17.
The Group’s policy in relation to managing financial and related
risks is set out in note 17 of the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group’s activities are carried out principally in North Africa
and Italy. Accordingly, the principal risks and uncertainties are
considered to be the following:
Exploration Risk
Exploration and development activities may be delayed or
adversely affected by factors outside the Group’s control, in
particular; climatic conditions; performance of joint venture
partners or suppliers; availability, delays or failures in installing
and commissioning plant and equipment; unknown geological
conditions resulting in dry or uneconomic wells; remoteness of
location; actions of host governments or other regulatory
authorities (relating to, inter alia, the grant, maintenance or
renewal of any required authorisations, environmental
regulations or changes in law).
Commodity Prices
The demand for, and price of, oil and gas is dependant on
global and local supply and demand, weather conditions,
availability of alternative fuels, actions of governments or
cartels and general global economical and political
developments.
Currency Risk
Although the reporting currency is the US dollar, which is the
currency most commonly used in the pricing of petroleum
commodities and for significant exploration and production
costs, other expenditure (in particular central administrative
costs) and equity funding is denominated in other currencies,
principally the euro, thus creating currency exposure.
Political Risks
As a consequence of activities in different parts of the world,
the Group may be subject to political, economic and other
uncertainties, including but not limited to terrorism, military
repression, war or other unrest, nationalism or expropriation
of property, changes in national laws and energy policies and
exposure to less developed legal systems.
SHARE PRICE
The share price movement in the year ranged from a low of
Stg£0.07 to a high of Stg£0.16 (�006: Stg£0.1� to Stg£0.�4).
The share price at year end was Stg£0.08 (�006: Stg£0.15).
�0
Report of the Directors [continued]
DIRECTORS’ INTERESTS
The interests of the Directors and Secretary and their families who held office at �1 December �007 in the share capital of the
Company are as follows:
27 June 31 Dec 31 Dec 2008 2007 2006 (or date of appointment if later)
A. Bostock – – –
C. Casey �9�,178 �9�,178 �9�,178
J. Craven 14,�4�,940 14,�4�,940 14,�4�,940
B. O’Cathain 1,170,000 – –
C. Schaffalitzky 5,150,089 5,150,089 5,150,089
Share Options: (all held at start and end of year except as indicated below, €)
Original Scheme
Share Exercise Market price Expiry Grantee Options price at grant date date (i)
C. Casey �,500,000 1.�5c 1.�7c �� July �010
J. Craven 6,000,000 1.�5c 1.�7c �� July �010
C. Schaffalitzky 6,000,000 1.�5c 1.�7c �� July �010
2004 Incentive Scheme (Std = Standard; Spr = Super)
Share Exercise Market price Expiry Grantee Options price at grant date date (i)
C. Casey (Std) �,750,000 1.�5c 1�.�4c �0 Apr �011
C. Casey (Spr) �,750,000 1.�5c 1�.�4c �0 Apr �011
J. Craven (Std) 1�,000,000 1.�5c 1�.�4c �0 Apr �011
J. Craven (Spr) 1�,000,000 1.�5c 1�.�4c �0 Apr �011
C. Schaffalitzky (Std) 1,000,000 1.�5c 1�.�4c �0 Apr �011
C. Schaffalitzky (Spr) 1,000,000 1.�5c 1�.�4c �0 Apr �011
B. O’Cathain (Std)* 5,�81,690 �0.55c �1.�c �5 Mar �014
B. O’Cathain (Spr)* 5,�81,690 �0.55c �1.�c �5 Mar �014
* Granted on 19 April 2007
(i) Grants have a seven year life from date of grant – they become exercisable if certain performance conditions are met.
All the above shareholdings are beneficially held. No Director, Secretary or any member of their immediate families had an
interest in any subsidiary.
See Note 1� for details of the option scheme. In addition, the rules of both of the Company’s share option schemes are available
for inspection at the registered office of the Company on request.
�1 P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
There have been no contracts or arrangements of significance during the year in which Directors of the Company were interested
other than as set out in Note 15 to the financial statements.
There are service contracts in place with the Executive Directors of the Company. The related contracts are available for inspection
at the registered office of the Company on request.
SIGNIFICANT SHAREHOLDINGS
The Company has been informed that, in addition to the interests of the Directors, as at �0 June �008, the following shareholders
own �% or more of the issued share capital of the Company:
Cantor Fitzgerald Europe 7.69%
RAB Energy Fund Limited 4.17%
RAB Octane (Master) Fund Limited 4.56%
FMR Corp & Fidelity International Limited 4.96%
L-R Managers LLC 4.10%
Gartmore Investment Management plc �.80%
The Directors are not aware of any other holding of �% or more of the issued share capital of the Company.
POLITICAL DONATIONS
No political donations were made during the year (2006: Nil).
SUBSIDIARY UNDERTAKINGS
Details of principal subsidiary undertakings are given in Note 18 to the financial statements.
CORPORATE GOVERNANCE STATEMENT
The Directors are committed to maintaining the highest standards of corporate governance commensurate with the size, stage
of development and financial status of the Group.
Board: The Company currently has five Directors, comprising two Executive Directors and three Non-Executive Directors. Andrew
Bostock is the senior independent Non-Executive Director. The Board met formally on 1� occasions during �007.
An agenda and supporting documentation was circulated in advance of each meeting. All the Directors bring independent
judgement to bear on issues affecting the Group and all have full and timely access to information necessary to enable them to
discharge their duties. The Directors have a wide and varying array of experiences in the oil and gas industry. Appropriate training
is provided on the first occasion that a new Director is appointed, if that person is without previous plc experience. Non-Executive
Directors are not appointed for specific terms. Each Director comes up for re-election automatically at least once every three
years and each new Director is subject to election at the first Annual General Meeting after appointment.
The roles of Executive Chairman and Chief Executive are not combined and there is a clear division of responsibilities between
them.
��
Report of the Directors [continued]
The following committees deal with specific aspects of the Group affairs:
Audit Committee: This committee is currently comprised of the three Non-Executive Directors. The external auditors have the
opportunity to meet with the members of the Audit Committee without executive management present at least once a year. The
duties of the committee include the review of the accounting principles, policies and practices adopted in preparing the financial
statements, external compliance matters and the review of the Group’s financial results.
Remuneration Committee: This committee is currently comprised of the three Non-Executive Directors. The committee
determines the contract terms, remuneration and other benefits of the Executive Directors. Further details of the Group’s policies
on remuneration, service contracts and compensation payments are given in the Remuneration Committee Report below.
Nominations Committee: The committee is currently comprised of B. O’Cathain, C. Casey and C. Schaffalitzky, and is
responsible for identifying and recruiting new Directors.
Communications: The Group maintains regular contact with shareholders through publications such as the annual report and
interim report, via press releases, the Group’s website (www.petroceltic.com) and through communications from our PR agencies
in Ireland and the UK.
Meetings are also held with institutions from time to time and with brokers representing individual shareholders. The Directors
are responsive to shareholder telephone enquiries throughout the year. The Board regards the annual general meeting as a
particularly important opportunity for shareholders, Directors and management to meet and exchange views.
INTERNAL CONTROL
The Board is responsible for maintaining the Group’s system of internal control to safeguard shareholder investments and Group
assets.
The Board has had in place for some years an established system for reviewing the internal financial controls of the Group. The
Board has established a process of internal controls to include not just financial risk management, but also operational and
compliance risk management.
During �007, the Directors continued their ongoing review of the key commercial and financial risks facing the Group, and of
the effectiveness of the Group’s system of internal control.
Among the processes applied as part of the system of internal control are the following:
n Budgets are prepared for approval by the Board.
n Expenditure and income are compared to previously approved budgets.
n The Board has established treasury risk policies.
n All commitments for expenditure and payments are compared to previously approved budgets and are subject to approval
by personnel designated by the Board of Directors.
n Cash flow forecasting is performed on an ongoing basis to ensure efficient use of cash resources.
n The Directors, through the Audit Committee, review the effectiveness of the Group’s system of internal financial control.
The Board has considered the requirement for an internal audit function. Based on the scale of the Group’s operations and close
involvement of the Board, the Directors have concluded that an internal audit function is not currently required.
�� P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
REMUNERATION COMMITTEE REPORT
The Group’s policy on senior executive remuneration is designed to attract and retain individuals of the highest calibre who can
bring their experience and independent views to the policy, strategic decisions and governance of the Group.
In setting remuneration levels, the Remuneration Committee takes into consideration the remuneration practices of other
companies of similar size and scope. A key philosophy is that staff must be properly rewarded and motivated to perform in the
best interests of the shareholders.
Remuneration, excluding share based payments, during the year ended �1 December �007 was as follows:
Basic Salary Fees Pension 2007 Total 2006 Total US$ US$ US$ US$ US$
B O’Cathain* �1�,57� – 119,870 4��,44� –
J.Craven 607,887 – �0,�09 6�8,096 689,568
A Bostock** – �0,180 – �0,180 –
C.Casey – – – – –
C.Schaffalitzky – 50,005 – 50,005 �0,149
B.Cusack*** �5,96� �7,970 – 6�,9�� 100,498
P. O’ Quigley**** – – – – 64�,5�4
957,4�� 98,155 150,079 1,�05,656 1,46�,749
* Appointed to the Board on 24 April 2007.
** Appointed to the Board on 21 June 2007.
*** Resigned from the Board on 30 July 2007.
**** Resigned from the Board on 13 October 2006.
BOOKS AND ACCOUNTING RECORDS
The Directors are responsible for ensuring proper books and accounting records, as outlined in Section �0� of the Companies
Act 1990, are kept by the Company. The Directors, through the use of appropriate procedures and systems and the employment
of competent persons, have ensured that measures are in place to secure compliance with these requirements. These books and
accounting records are maintained at Styne House, Upper Hatch Street, Dublin �.
AUDITOR
KPMG will continue in office in accordance with Section 160(�) of the Companies Act, 196�.
On behalf of the Board
Con Casey John Craven
Director Director
�7 June �008
�4
Independent Auditor’s Reportto the Members of Petroceltic International plc
We have audited the Group and Company financial statements (the “financial statements”) of Petroceltic International plc for
the year ended �1 December �007 which comprise the Group income statement, the Group and Company statements of
recognised income and expense, the Group and Company Balance Sheets, the Group and Company Cash Flow Statements and
the related notes. These financial statements have been prepared under the accounting policies set out therein.
This report is made solely to the Company’s members, as a body, in accordance with section 19� of the Companies Act 1990.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state
to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or
for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR
The Directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with applicable
law and International Financial Reporting Standards (IFRSs) as adopted by the EU, are set out in the Directors’ responsibility
statement on page 18.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and
International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view in accordance with IFRSs as
adopted by the EU and, in the case of the Company, as applied in accordance with the provisions of the Companies Acts 196�
to �006, and have been properly prepared in accordance with the Companies Acts 196� to �006. We also report to you our
opinion as to: whether proper books of account have been kept by the Company; whether at the Balance Sheet date, there
exists a financial situation requiring the convening of an extraordinary general meeting of the Company under Section 40(1) of
the Companies (Amendment) Act 198�; and whether the information given in the Directors’ Report is consistent with the
financial statements. In addition, we state whether we have obtained all the information and explanations necessary for the
purposes of our audit, and whether the Company financial statements are in agreement with the books of account.
We also report to you if, in our opinion, any information specified by law regarding Directors’ remuneration and Directors’
transactions is not disclosed and, where practicable, include such information in our report.
We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial
statements. The other information comprises only the Chairman’s Statement, Chief Executive’s Review and the Directors’ Report.
We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with
the financial statements. Our responsibilities do not extend to any other information.
BASIS OF AUDIT OPINION
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices
Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation
of the financial statements, and of whether the accounting policies are appropriate to the Group’s and Company’s circumstances,
consistently applied and adequately disclosed.
�5 P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in
order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material
misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
INTANGIBLE ASSETS
In forming our opinion, we have considered the adequacy of the disclosures made in Note 7 to the financial statements in
relation to the Directors’ assessment of the carrying value of the Group’s intangible assets, which amount to US$47.49 million.
Our opinion is not qualified in this respect.
OPINION
In our opinion
n the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the
Group’s affairs as at �1 December �007 and of its loss for the year then ended;
n the Company financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU and as applied
in accordance with the provisions of the Companies Acts, 196� to �006, of the state of the Company’s affairs as at
�1 December �007; and
n the financial statements have been properly prepared in accordance with the Companies Acts, 196� to �006.
We have obtained all the information and explanations which we consider necessary for the purposes of our audit. In our
opinion, proper books of account have been kept by the Company. The Company financial statements are in agreement with
the books of account.
In our opinion, the information given in the Directors’ Report on pages 18 to �� is consistent with the financial statements.
The net assets of the Company, as stated in the Company Balance Sheet on page �4, are more than half of the amount of its
called-up share capital and, in our opinion, on that basis there did not exist at �1 December �007 a financial situation, which
under Section 40 (1) of the Companies (Amendment) Act, 198�, would require the convening of an extraordinary general
meeting of the Company.
KPMG
Chartered Accountants
Registered Auditor
�7 June �008
Dublin
�6
Statement of Accounting Policies
Petroceltic International plc (“the Company”) is a company incorporated in Ireland. The Group financial statements consolidate
those of the Company and its subsidiaries (together referred to as the “Group”).
The Group and Company financial statements were authorised for issue by the Directors on �7 June �008.
A. STATEMENT OF COMPLIANCE
As permitted by the European Union and in accordance with AIM and IEX rules, the Group financial statements have been
prepared in accordance with International Financial Reporting Standards (IFRSs) and their interpretations issued by the International
Accounting Standards Board (IASB) as adopted by the EU (IFRS). The individual financial statements of the Company (‘Company
financial statements’) have been prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the
Companies Acts, 196� to �006 which permits a company, that publishes its company and group financial statements together,
to take advantage of the exemption in Section 148(8) of the Companies Act 196�, from presenting to its members its company
income statement and related notes that form part of the approved company financial statements.
These are the Company’s and Group’s first financial statements prepared in accordance with IFRS as adopted by the EU and IFRS 1,
First-time Adoption of International Financial Reporting Standards, has been applied.
The IFRSs adopted by the EU as applied by the Company and Group in the preparation of these financial statements are those
that were effective at �1 December �007.
The following provides a brief outline of the likely impact on future financial statements of relevant IFRSs and interpretations
adopted by the EU which are not yet effective and have not been adopted in these financial statements:
n IFRS 8 Operating Segments, effective for accounting periods beginning on or after 1 January �009, sets out the requirements
for disclosure of financial and descriptive information about an entity’s operating segments, its products and services, the
geographical areas in which it operates, and its major customers. IFRS 8 will replace IAS 14 Segment Reporting and will
require additional disclosures.
n IFRIC 11, IFRS � Group and Treasury Share Transactions, effective for accounting periods beginning on or after 1 March �007.
IFRC 11 requires a share-based payment arrangement in which an entity receives goods or services as consideration for its
own equity instruments to be accounted for as an equity settled share-based payment transaction, regardless of how the
equity instruments are obtained. IFRIC 11 will become mandatory for the Group’s �008 financial statements, with retrospective
application required. It is not expected to have any impact in the Group financial statements and is not expected to have a
material impact on the Company financial statements, as the accounting policy currently applied is consistent with the
requirements of the interpretation.
B. FIRST TIME ADOPTION OF IFRSs
The Group and Company are required to determine their EU IFRS accounting policies and apply them retrospectively to establish
their opening Balance Sheets under EU IFRS at their date of transition. The date of transition to EU IFRSs for the Group and
Company is 1 January �006. The impact of the transition to EU IFRS is outlined in Note 19. Where estimates had been made
under Irish GAAP, consistent estimates (after adjustments to reflect any difference in accounting policies) have been made on
transition to EU IFRS. Judgements affecting the Balance Sheets of the Company and Group have not been revisited with the
benefit of hindsight.
�7 P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
IFRS 1, First Time Adoption of International Financial Reporting Standards, allows a number of exemptions on adoption of EU
IFRS for the first time. The Group has applied the following exemption as permitted by IFRS 1:
Currency Translation Reserve
The Group has deemed the currency translation reserve at 1 January �006 to be nil.
C. BASIS OF PREPARATION
The Group and Company financial statements are prepared on the historical cost basis, except for available-for-sale assets, which
are carried at fair value. The accounting policies have been applied consistently by Group entities. The financial statements are
presented in US dollars, rounded to the nearest thousand. See accounting policy ‘G’ for details of functional currencies.
The preparation of financial statements in conformity with EU IFRS requires management to make judgements, estimates and
assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of
assets and liabilities that are not readily apparent from other sources.
In particular, significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the
most significant effect on the amount recognised in the financial statements are in the following areas:
n Measurement of the impairment of intangible assets
n Utilisation of tax losses
n Measurement of share-based payments
D. CONSOLIDATION
The consolidated financial statements comprise the financial statements of Petroceltic International plc and its subsidiaries for
the year ended �1 December �007.
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern
the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting
rights that are currently exercisable or convertible are taken into account. Subsidiaries are fully consolidated from the date that
control commences until the date that control ceases. Accounting policies of subsidiaries have been changed where necessary
to ensure consistency with the policies adopted by the Group.
E. REVENUE
Revenue represents royalty income and is recognised as the royalty falls due.
F. INTANGIBLE ASSETS
Intangible assets comprise a royalty over a gas field in Kinsale Head and exploration and evaluation assets.
�8
Statement of Accounting Policies [continued]
Royalty
The royalty asset is carried at cost, net of accumulated amortisation. Amortisation is charged in the proportion that the current
year’s production bears to the total anticipated production from the start of the financial year to the end of the field’s life.
Changes in estimated production are accounted for prospectively.
Exploration and Evaluation Assets
Expenditure incurred prior to obtaining the legal rights to explore an area is written off to the income statement. Expenditure
incurred on the acquisition of a licence interest are initially capitalised on a licence by licence basis. Exploration and evaluation
expenditure incurred in the process of determining exploration targets on each licence is also capitalised. These expenditures are
held undepleted within the exploration licence asset until such time as the exploration phase on the licence area is complete or
commercial reserves have been discovered.
Exploration and evaluation drilling costs are capitalised on a well by well basis within each licence until the success or otherwise
of the well as been established. Unless further evaluation expenditures in the area of the well have been planned and agreed or
unless the drilling results indicate that hydrocarbon reserves exist and there is a reasonable prospect that these reserves are
commercial, drilling costs are written off on completion of a well.
Impairment
Royalty and exploration and evaluation assets are reviewed regularly for indicators of impairment and costs are written off where
circumstances indicate that the carrying value might not be recoverable. Any such impairment arising is recognised in the income
statement for the period.
G. FOREIGN CURRENCY
On transition to IFRS, the Directors determined that, in accordance with IAS �1, the functional currency of the Company and
most of its subsidiaries is the US dollar; previously certain subsidiaries had the euro as their functional currency. Those subsidiaries
which now have the euro as their functional currency (principally Petroceltic Elsa S.R.L., which operates the Group’s Italian
interests) had no material net assets at the year end and have not recorded any income or expense during the year, and
accordingly no foreign currency translation reserve has arisen since the transition to IFRS.
Foreign Currency Transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the
dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated
to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies
that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that fair value was
determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on
the retranslation of available-for-sale equity instruments, which are recognised directly in equity.
Foreign Operations
The assets and liabilities of foreign operations are translated to US dollars at exchange rates at the reporting date. Any income
or expense of foreign operations is translated to US dollars at average exchange rates for the year. Foreign currency differences
arising will be recognised in the foreign currency translation reserve in equity.
�9 P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
H. TAXATION
Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent
that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at
the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised
for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a
transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to
investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured
at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have
been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which
temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that
it is no longer probable that the related tax benefit will be realised.
I. RETIREMENT BENEFIT OBLIGATIONS
The Group contributes to a defined contribution pension scheme for certain executives. Pension scheme costs are accounted for
on an accruals basis.
J. SHARE BASED COMPENSATION
The Group issues share options as an incentive to certain key management and staff (including Directors). The fair value of share
options granted to Directors and employees under the Company’s option schemes is recognised as an expense with a
corresponding credit to the share based payments reserve. The fair value is measured at grant date and spread over the period
during which the awards vest. The fair value is measured using a binomial lattice model, taking into account the terms and
conditions upon which the options were granted. A discount for market conditions has been applied to the fair values determined
by the binomial model based on a Monte Carlo simulator analysis.
The options issued are subject to both market-based and non-market based vesting conditions. Market conditions are included
in the calculation of fair value at the date of the grant. Non-market vesting conditions are not taken into account when
estimating the fair value of awards as at grant date; such conditions are taken into account through adjusting the number of
equity instruments that are expected to vest.
The Group has issued warrants to its Italian licence interest partners in return for interests in the exploration licence BR.�68.RG
offshore Italy. The fair value of these warrants was determined in accordance with IFRS � based upon a valuation model. The
deemed cost of these warrants has been capitalised as ‘Intangible assets – exploration and evaluation assets’ in the Group
Balance Sheet. The deemed cost of these warrants has been reflected as ‘Investment in Subsidiaries’ in the Company’s Balance
Sheet, as representing capital contributions to the Group’s Italian subsidiary. The corresponding credit has been recorded in the
share based payment reserve in both the Group and Company Balance Sheets.
�0
Statement of Accounting Policies [continued]
The proceeds received net of any directly attributable transactions costs will be credited to share capital (nominal value) and share
premium when options or share warrants are converted into ordinary shares.
The cost of share based payments is borne by the Company and not recharged to subsidiary entities, on the basis that the share
awards have been made principally to Directors and senior management of the Company.
K. EARNINGS PER SHARE
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the
profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares
outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and
the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which
comprise share options granted to employees and warrants.
L. OPERATING LEASES
Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term.
M. FINANCIAL INSTRUMENTS
Available-for-sale Assets
Investments in equity securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are
measured at fair value and changes therein are recognised in equity, via the statement of recognised income and expense.
Impairment losses are calculated by reference to current market value and recognised in profit or loss.
Cash and Cash Equivalents
Cash and cash equivalents in the Balance Sheet comprise cash at bank and in hand and short term deposits with an original
maturity of three months or less. Bank overdrafts that are repayable on demand and form part of the Group’s cash management
are included as a component of cash and cash equivalents for the purpose of the statement of cashflows.
Trade and Other Receivables/Payables
Trade and other receivables and payables are stated at cost less impairment, which approximates fair value given the short-dated
nature of these assets and liabilities.
N. FINANCE INCOME
Finance income comprises interest income on funds invested, gains on disposal of available-for-sale financial assets and foreign
currency gains. Interest income is recognised as it accrues, using the effective interest rate method.
�1 P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
Consolidated Income Statementfor the year ended �1 December �007
2007 2006 Notes US$’000 US$’000
Continuing Operations
Revenue 1 549 1,�66
Administrative expenses (2,817) (�,577)
Amortisation of intangible assets (53) (51)
Exploration costs written off 7 (210) (5,756)
Cost of share based payments 13 (1,757) (1,8��)
Results from operating activities (4,288) (8,950)
Finance income 2 1,827 4,�57
Loss before tax 3 (2,461) (4,69�)
Income tax expense 4 – (10�)
Loss for the year – all attributable to equity holders in the Company 14 (2,461) (4,795)
Basic loss per share (cent) 6 (0.33) (0.70)
Diluted loss per share (cent) 6 (0.33) (0.70)
The accompanying notes on pages �7 to 54 form an integral part of these financial statements.
On behalf of the Board
Con Casey John Craven
Director Director
��
Consolidated Statement of Recognised Income and Expense for the year ended �1 December �007
2007 2006 Notes US$’000 US$’000
Loss for the year (2,461) (4,795)
Income recognised directly in equity
- net change in fair value of available-for-sale assets 9 50 �99
- related deferred tax (10) (59)
Total recognised income and expense for the year, all attributable to equity holders of the Company (2,421) (4,555)
The accompanying notes on pages �7 to 54 form an integral part of these financial statements.
On behalf of the Board
Con Casey John Craven
Director Director
2007 2006 Notes US$’000 US$’000
Loss for the year (1,757) (1,8��)
Income recognised directly in equity
- net change in fair value of available-for-sale assets 9 50 �99
- related deferred tax (10) (59)
Total recognised income and expense for the year, all attributable to equity holders of the Company (1,717) (1,59�)
Company Statement of Recognised Income and Expense for the year ended �1 December �007
�� P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
Consolidated Balance Sheetas at �1 December �007
2007 2006 Notes US$’000 US$’000
Assets
Non-current assets
Intangible assets 7 47,490 41,767
Investments 9 758 708
Total non-current assets 48,248 4�,475
Trade and other receivables 10 632 985
Cash and cash equivalents 23,463 ��,410
Total current assets 24,095 �4,�95
Total assets 72,343 76,870
Equity
Share capital 13,14 26,191 �6,191
Capital conversion reserve fund 14 51 51
Share premium 14 113,079 11�,079
Share based payment reserve 14 9,220 7,46�
Fair value reserve 14 562 5��
Retained earnings 14 (78,290) (75,8�9)
Total equity 14 70,813 71,477
Liabilities – current
Trade and other payables 11 1,390 5,�6�
Liabilities – non current
Deferred tax 12 140 1�0
Total liabilities 1,530 5,�9�
Total equity and liabilities 72,343 76,870
The accompanying notes on pages �7 to 54 form an integral part of these financial statements.
On behalf of the Board
Con Casey John Craven
Director Director
�4
Company Balance Sheetas at �1 December �007
2007 2006 Notes US$’000 US$’000
Assets
Investments in subsidiaries 8 3,921 �,9�1
Investments 9 758 708
Total non-current assets 4,679 4,6�9
Receivables – amounts due from subsidiaries 55,367 55,�67
Total current assets 55,367 55,�67
Total assets 60,046 59,996
Equity
Share capital 13,14 26,191 �6,191
Capital conversion reserve fund 14 51 51
Share premium 14 113,079 11�,079
Fair value reserve 14 562 5��
Share based payment reserve 14 9,220 7,46�
Retained earnings 14 (89,197) (87,440)
Total equity 59,906 59,866
Liabilities
Deferred tax 12 140 1�0
Total non-current liabilities 140 1�0
Total equity and liabilities 60,046 59,996
The accompanying notes on pages �7 to 54 form an integral part of these financial statements.
On behalf of the Board
Con Casey John Craven
Director Director
�5 P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
Consolidated Cash Flow Statementfor the year ended �1 December �007
2007 2006 US$’000 US$’000
Cash flows from operating activities
Loss for the year (2,461) (4,795)
Adjustments for:
Finance income (1,827) (4,�57)
Income tax expense – 10�
Amortisation of intangible assets 53 51
Exploration costs written off 210 5,756
Cost of share based payments 1,757 1,8��
Cash from operations before changes in working capital (2,268) (1,�11)
Decrease/(increase) in trade and other receivables 353 (190)
(Decrease)/increase in trade and other payables (626) 4,681
Net cash from operating activities (2,541) �,180
Cash flows from investing activities
Expenditure on intangible assets (9,233) (�4,4�7)
Interest received 1,515 1,870
Sale of investments – 1
Net cash from investing activities (7,718) (��,556)
Cash flows from financing activities
Proceeds from the issue of new shares – 40,994
Net cash from financing activities – 40,994
Net (decrease)/increase in cash and cash equivalents (10,259) 11,618
Effect of foreign exchange fluctuations on cash and cash equivalents 312 �,�87
Cash and cash equivalents at start of year 33,410 19,405
Cash and cash equivalents at end of year 23,463 ��,410
The accompanying notes on pages �7 to 54 form an integral part of these financial statements.
�6
Company Cash Flow Statementfor the year ended �1 December �007
2007 2006 US$’000 US$’000
Cash flows from operating activities
Loss before tax (1,757) (1,8��)
Adjustments for:
Cost of share based payments 1,757 1,8��
Net cash from operating activities – –
Cash flows from investing activities
Advances to subsidiary companies – (40,995)
Sale of financial investments – 1
Net cash from investing activities – (40,994)
Cash flows from financing activities
Proceeds from the issue of new shares – 40,994
Net cash from financing activities – 40,994
Net increase in cash and cash equivalents – –
Cash and cash equivalents at start of year – –
Cash and cash equivalents at end of year – –
�7 P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
Notes to the Financial Statementsfor the year ended �1 December �007
1. REVENUE AND SEGMENTAL INFORMATION
Group revenue is generated in the Republic of Ireland and comprises royalty income from the production of gas from the Group’s
interest in certain Kinsale gas fields. All of the Group’s activities relate to a single segment, oil and gas exploration. A geographical
analysis of the Group’s exploration and evaluation assets is set out in Note 7.
2. FINANCE INCOME
2007 2006 US$’000 US$’000
Interest income 1,515 1,870
Foreign currency gains 312 �,�87
1,827 4,�57
3. STATUTORY INFORMATION
2007 2006 US$’000 US$’000
Group
The loss for the financial year is stated after charging:
(i) Auditor’s remuneration
- audit services 50 �5
- other services 51 –
(ii) Directors’ remuneration
Fees 98 74
Executive services, incl. pension contributions 1,108 1,�90
Cost of share awards relating to Directors 1,269 1,715
Total Directors’ remuneration 2,475 �,179
(iii) Operating lease rentals – premises 64 67
Company
Auditor’s remuneration 30 15
The loss for the financial year in the Company amounted to (1,757) (1,8��)
�8
Notes to the Financial Statements [continued]
4. TAX ON LOSS ON ORDINARY ACTIVITIES
2007 2006 US$’000 US$’000
Current tax
Charge for the year – �19
Overprovision in prior year – (117)
– 10�
Deferred tax
Origination and reversal of timing differences – –
Total tax charge – 10�
Tax charge recognised directly in equity
Deferred tax on increase in fair value of available-for-sale assets 10 59
The difference between the total current tax shown above and the amount calculated by applying the standard rate of Irish
corporation tax to the loss before tax is as follows:
Loss on ordinary activities before tax (2,461) (4,69�)
Tax credit on Group loss on ordinary activities at Irish corporation tax rate of �5% (�006: �5%) (615) (1,17�)
Effects of:
Expenses not deductible for tax purposes 489 1,957
Timing differences (48) (565)
Losses carried forward 174 –
Overprovision in prior year – (117)
Tax charge for the year – 10�
5. EMPLOYEE DATA
2007 2006 US$’000 US$’000
Group
Employee costs (including Executive Directors)
Salaries 1,252 1,01�
Social insurance costs 122 100
Pensions 162 5�9
Cost of share awards 1,041 1,4�8
2,577 �,080
�9 P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
5. EMPLOYEE DATA [continued]
2007 2006 Number Number
Average number of employees (including Executive Directors)
Operations and exploration 4 �
Finance 2 �
Administration 5 �
11 9
The Group contributes to a defined contribution pension scheme for certain executives. The scheme is administered by Trustees
and is independent of the Group’s finances. Total contributions by the Group to pension schemes for the year amounted to
US$161,855 (�006: US$5�9,74�). Of this amount, none was outstanding at year end (�006: US$199,679).
Company
All Group employees are employed in subsidiary companies. The only employee cost in the Company, therefore, is the cost of
share based payments, which is borne by the Company.
6. LOSS PER SHARE
The calculation of basic and diluted loss per share for the year was based on the loss attributable to equity holders of US$�,461,000
(�006: US$4,795,000) and a weighted average number of ordinary shares outstanding of 7�7,��7,818 (�006: 687,988,51�),
calculated as follows: 2007 2006
Basic and diluted loss per ordinary share: Loss on ordinary activities after taxation (US$000) (2,461) (4,795)
Number of ordinary shares in issue – start of year 737,327,818 578,69�,194
Effect of shares issued during the year – 109,�96,�19
Weighted average number of ordinary shares in issue – basic and diluted 737,327,818 687,988,51�
Basic (loss) per ordinary share (in cent) (0.33) (0.70)
Diluted (loss) per ordinary share (in cent) (0.33) (0.70)
The average market value of the Company’s shares for the purposes of calculating the dilutive effect of share options and
warrants was based on quoted market prices for the period in which the options and warrants were outstanding.
Share options and warrants which could potentially dilute basic earnings per share in the future have not been included in the
calculation of diluted earnings per share as they are antidilutive for the periods presented. The dilutive effect as a result of share
options and warrants in issue as at �1 December �007 would be to increase the weighted average number of shares by
96,141,151 (�006: 8�,764,�6�).
40
Notes to the Financial Statements [continued]
7. INTANGIBLE ASSETS
Exploration and Royalty Royalty evaluation assets Total Total
2007 2006 2007 2006 2007 2006 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Cost
At start of year �,9�� �,9�� 60,519 �6,09� 6�,451 �9,0�4
Additions – – 5,986 �4,4�7 5,986 �4,4�7
At end of year 2,932 2,932 66,505 60,519 69,437 63,451
Amortisation and impairment
At start of year �,696 �,645 18,988 1�,��� �1,684 15,877
Amortisation 5� 51 – – 5� 51
Exploration costs written off – – �10 5,756 �10 5,756
At end of year 2,749 2,696 19,198 18,988 21,947 21,684
Net book value
At start of year ��6 �87 41,5�1 1�,860 41,767 1�,147
At end of year 183 236 47,307 41,531 47,490 41,767
Oil and gas interests as at �1 December �007 comprise the Group’s interest in the following:
Country Permit/PSC Group Interest (%)
Algeria Isarene PSC 75%
Tunisia Ksar Hadada PSC 57%
Ireland Kinsale Royalty �5% of Royalty
Eastern Italy BR �68 RG permit 40%
Eastern Italy Civitaquana permit �5%
Italy – Po Valley Carisio permit 95%
Italy – Po Valley Casalnoceto permit 75%
Italy – Po Valley Trino permit 50%
Italy – Po Valley Torrente Nure permit 55%
Italy – Po Valley Vercelli permit 50%
Italy – Po Valley Case Sparse permit application 100%
Italy – Offshore Sicily Licata permit application �7.5%
Italy – Adriatic 9 permit applications (7 being exclusive)
41 P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
7. INTANGIBLE ASSETS [continued]
The carrying values of oil and gas interests by geographical areas is as follows:
2007 2006 US$’000 US$’000
Ireland 1,004 1,057
North Africa 42,158 �9,1�8
Italy 4,328 1,58�
47,490 41,767
8. INVESTMENT IN SUBSIDIARIES
2007 2006 US$’000 US$’000
Company
Investment in subsidiary undertakings at cost:
Balance at beginning of year 3,921 �,477
Restructuring of investment in Group companies – 444
Balance at end of year 3,921 �,9�1
Details of subsidiaries are set out in Note 18.
9. INVESTMENTS – AVAILABLE FOR SALE ASSETS
2007 2006 US$’000 US$’000
Quoted investments
Balance at beginning of year 708 409
Increase in market value during the year 50 �99
Balance at end of year 758 708
The Group owns shares in the following: Market value Market value at year end at year end
2007 2006
Name Quoted on US$’000 US$’000
Dana Petroleum plc London Stock Exchange 540 476
ZincOx Resources plc AIM 218 ���
758 708
4�
Notes to the Financial Statements [continued]
10. TRADE AND OTHER RECEIVABLES
2007 2006 US$’000 US$’000
Amounts falling due within one year
Royalty income receivable 168 �86
Prepayments 122 –
Corporation tax recoverable 182 560
VAT 160 �9
632 985
All receivables are current and there have been no impairment losses during the year (�006: Nil). The Group’s exposure to credit
and currency risks related to trade and other receivables is set out in Note 17.
11. TRADE AND OTHER PAYABLES
2007 2006 US$’000 US$’000
Amounts falling due within one year
Trade creditors 572 �,76�
PAYE/PRSI 4 98
Accruals 814 1,40�
1,390 5,�6�
The Group’s exposure to currency and liquidity risks related to trade and other payables is set out in Note 17.
12. DEFERRED TAX
At At At 1 January Recognised 31 December Recognised 31 December 2006 in equity 2006 in equity 2007 US$’000 US$’000 US$’000 US$’000 US$’000
Group and Company Liabilities
Available-for-sale financial assets 71 59 1�0 10 140
Unrecognised deferred tax assets in the Group at �1 December �007, all of which related to unrecognised tax losses, amounted
to US$5.4 million (�006: US$4.8 million). The Company has no unrecognised deferred tax (�006 – nil).
4� P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
13. CALLED UP SHARE CAPITAL
2007 2006 € €
Authorised
900,000,000 Ordinary shares of €0.01�5 11,250,000 11,�50,000
�00,000,000 Deferred shares of €0.114�7 22,855,285 ��,855,�85
34,105,285 �4,105,�85
2007 2006 US$’000 US$’000
Issued, called up and fully paid
Balance at 1 January and �1 December, comprising 7�7,��7,818 Ordinary shares of €0.01�5 each 26,191 �6,191
Capital Management
The Board’s policy is to maintain a strong capital base so as to maintain investor and market confidence and to sustain future
developments of the business. There were no changes in the Group’s approach to capital management during the year. The
Group deems its shareholders’ funds to be its capital.
It is Group policy to incentivise Directors through the award of share options. At present, Directors hold �.86% of ordinary
shares, or 9.60% assuming that all outstanding share options vest and are exercised. The upper limit on the number of share
options that can be granted, excluding options granted under the Original scheme (see below), is 10% of issued share capital.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
Share Based Payments
The Group grants share options under two share option plans, the ‘Original Scheme’ and the ‘�004 Incentive Scheme’. Both
‘Standard’ and ‘Super’ options can be granted under the �004 Incentive Scheme. The options under the latter scheme may only
be exercised if predetermined growth rates in the Company’s share price are achieved. All options under the original scheme
have now vested.
The Group’s employee share options are equity-settled share-based payments as defined in IFRS �, Share based payment. This
standard requires that a recognised valuation methodology be employed to determine the fair value of share options granted.
The expense reported in the Group income statement of US$1,757,000 (2006: US$1,832,000) has been arrived at through
applying a binomial lattice model, with a discount for market conditions applied to the fair value determined by this model based
on a Monte Carlo simulator analysis.
44
Notes to the Financial Statements [continued]
13. CALLED UP SHARE CAPITAL [continued]
The movement on outstanding share options and warrants during the year was as follows:
2007 2007 2006 2006
Weighted Weighted Number of average Number of average options/ exercise price options/ exercise price warrants (c. per share) warrants (c. per share)
Outstanding at start of year 89,629,000 5.04 80,800,000 �.09
Granted during the year – options (a), (b) 11,763,380 20.19 6,500,000 18.4�
Granted during the year – warrants – – �,1�9,000 �6.64
Lapsed during the year – warrants (c) (3,129,000) 26.64 – –
Exercised during the year – options (d) – – (800,000) 1.�5
Outstanding at end of year 98,263,380 6.17 89,6�9,000 5.04
Of which:
Exercisable at year end 69,575,000 1.50 56,�00,000 1.�5
(a) Effective �6 March �007, 10,56�,�80 options with an exercise price of €0.�055 and an exercise period up to �5 March �014
were granted to the newly appointed Executive Chairman of the Company.
(b) On �1 July �007, 1,�00,000 options with an exercise price of €0.17 and an exercise period up to �0 July �014 were granted
to certain employees of the Company.
(c) On �7 April �007, �,1�9,000 warrants which had been awarded to the Group’s stockbrokers in �006 lapsed without being
exercised. Davy and Mirabaud had each been granted 990,000 warrants with a subscription price of Stg16.8p and 574,500
warrants with a subscription price of Stg�1.6p, in lieu of fees for their services in relation to the raising of equity capital in
the year ended �1 December �006.
(d) The average share price at date of exercise of these options was �7.15c.
45 P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
13. CALLED UP SHARE CAPITAL [continued]
The assumptions used to determine the fair value of options granted were as follows:
2007 2006
Weighted average fair value of options granted (€) 20.19c 18.4�c
Weighted average share price at date of grant (€) 11.96c 11.5�c
Average exercise price (€) 6.17c 5.04c
Expected volatility (%) 77.28% 88.56%
Average expected term to exercise (years) 4.44 4.4�
Risk free rate (%) 3.51% �.��%
Expected dividend yield 0% 0%
The market-based vesting conditions requires the share price of the Company to increase from the exercise price, by 10% (standard
options) or �0% (super options) per annum, compounded year on year from the effective date of grant to the exercise date.
Expected share price volatility was determined by taking account the historic daily share price movements.
The average expected term to exercise used in the models has been adjusted based on the Directors’ best estimate, for the
effects of non-transferability, exercise restrictions and behavioural conditions, forfeiture and historical experience.
The risk free rate has been determined from market yields for government bonds with outstanding terms equal to the average
expected term to exercise for each relevant grant.
At �1 December �007, the following options and warrants over ordinary shares were outstanding:
Exercise price Exercise Number Type (euro cent) period
Original scheme
�0,500,000 Options 1.�5 Up to �� July �010
2004 Incentive scheme
49,500,000 Options 1.�5 Up to �0 April �011
4,000,000 Options 18.4� Up to �1 July �008
6,500,000 Options 18.4� Up to 5 November �01�
10,56�,�80 Options �0.55 Up to �5 March �014
1,�00,000 Options 17.0 Up to �0 July �014
Warrants
6,000,000 Warrants 14.6 Up to �8 June �009
46
Notes to the Financial Statements [continued]
14. STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Capital Share conversion based Fair Share reserve Share payment value Retained Total capital fund premium reserve reserve earnings equity US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Group
Balance at 1 January �006 ��,757 51 74,519 5,6�1 �8� (71,0�4) ��,�06
Shares issued �,4�4 – �8,560 – – – 40,994
Share based payment charge – – – 1,8�� – – 1,8��
Gain on investments, net of deferred tax – – – – �40 – �40
Loss for the financial year – – – – – (4,795) (4,795)
Balance at �1 December �006 and at 1 January �007 �6,191 51 11�,079 7,46� 5�� (75,8�9) 71,477
Share based payment charge – – – 1,757 – – 1,757
Gain on investments, net of deferred tax – – – – 40 – 40
Loss for the financial year – – – – – (�,461) (�,461)
Balance at 31 December 2007 26,191 51 113,079 9,220 562 (78,290) 70,813
Company
Balance at 1 January �006 ��,757 51 74,519 5,6�1 �8� (85,608) 18,6��
Shares issued �,4�4 – �8,560 – – – 40,994
Share based payment charge – – – 1,8�� – – 1,8��
Gain on investments, net of deferred tax – – – – �40 – �40
Loss for the financial year – – – – – (1,8��) (1,8��)
Balance at �1 December �006 and at 1 January �007 �6,191 51 11�,079 7,46� 5�� (87,440) 59,866
Share based payments charge – – – 1,757 – – 1,757
Gain on investments, net of deferred tax – – – – 40 – 40
Loss for the financial year – – – – – (1,757) (1,757)
Balance at 31 December 2007 26,191 51 113,079 9,220 562 (89,197) 59,906
47 P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
15. RELATED PARTY TRANSACTIONS – GROUP AND COMPANY
The Group uses the taxation, payroll and consultancy services of LHM Casey McGrath on an arms length basis. Mr C. Casey is
the managing partner of this accountancy practice. The total fees invoiced to the Group during the year were US$16�,971
(�006: US$��1,975). Amounts owing to LHM Casey McGrath at year end amounted to US$19,5�9 (�006: US$8,901).
During the year the Group rented its head office from the Northbrook Property Partnership, of which Mr C. Casey is a partner,
on an arms length basis. Total fees invoiced to the Group during the year were US$64,084 (�006: US$67,�85). Amounts owing
to the Northbrook Property Partnership at year end amounted to US$�,557 (�006: US$510).
The Group uses the IT services of CMG Interactive on an arms length basis. Mr C. Casey is a Director of this Company. Total fees
invoiced to the Group during the year were US$�9,4�9 (�006: US$48,416). Amounts owing to CMG Interactive at year end
amounted to US$15,454 (�006: US$14,878).
The Group uses the consultancy services of Mr B. Cusack, who was a Director of the Group until �0 July �007. The consultancy
fees invoiced to the Group during the year were US$�67,150, none of which was outstanding at year end.
IAS �4 requires the disclosure of compensation paid to the Group’s key management personnel. In the case of the Group, key
management is deemed to comprise the Board of Directors. Details of the remuneration of the Directors are set out in Note �
while their interests in shares and share options are set out in the Directors’ Report.
16. LEASE COMMITMENTS
During the year ended �1 December �007, the Group entered into an operating lease in respect of its new head office premises.
This agreement expires in �011 and provides for an annual rental of €17�,000.
17. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
Group
(a) Overview of risk exposures and risk management strategy
The Group’s operations expose it to various financial risks in the ordinary course of business that include credit risk, liquidity risk,
currency risk and interest rate risk. The Group’s financial exposures are predominantly related to changes in foreign exchange
rates and interest rates as well as the creditworthiness of counterparties. The Group has a risk management programme in place
which seeks to limit the impact of these risks on the financial performance of the Group and it is Group policy to manage these
risks in a non-speculative manner.
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and
processes for measuring and managing the risk, and the Group’s management of liquid resources. Further quantitative disclosures
are included throughout this note.
The Board of Directors has the overall responsibility for the establishment and oversight of the Group’s risk management
framework. The Board has reviewed the process for identifying and evaluating the significant risks affecting the business and the
policies and procedures by which these risks will be managed effectively. The Board has embedded these structures and
procedures throughout the Group and considers there to be a robust and efficient mechanism for creating a culture of risk
awareness at every level of management.
48
Notes to the Financial Statements [continued]
17. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT [continued]
The Group’s overall risk management programme seeks to minimise potential adverse effects on the Group’s financial performance
from fluctuations in financial markets.
(b) Financial assets and liabilities – fair values
The Group’s financial assets and liabilities are as follows:
Loans Other Total and Available- amortised carrying receivables for-sale cost amount US$’000 US$’000 US$’000 US$’000
Cash and cash equivalents ��,46� – – ��,46�
Investments – 758 – 758
Trade and other receivables 168 – – 168
Trade and other payables – – (57�) (57�)
��,6�1 758 (57�) ��,817
In each case, there is no difference between the carrying value of these assets and liabilities and their fair values.
Set out below are the methods and assumptions used in estimating the fair values of financial assets and liabilities:
Investments – available-for-sale financial assets
These assets comprise shares held in companies which are quoted on a recognised stock exchange. The fair value represents
the bid price on the Balance Sheet date.
Cash and cash equivalents
For cash and cash equivalents, all of which have a remaining maturity of less than three months, the nominal amount is deemed
to reflect fair value.
Trade and other receivables/payables
All receivables and payables have a remaining life of less than six months or are demand balances, and therefore the carrying
value is deemed to reflect fair value.
(c) Credit Risk
Credit risk arises from the Group’s holding of cash and cash equivalents. Given the nature of the Group’s receivables, it has no
significant exposure to credit risk arising from trade and other receivables. The Group’s maximum exposure to credit risk is the
carrying value of cash and cash equivalents and trade and other receivables.
Cash and cash equivalents
The Group enters into transactions with financial institutions for the purposes of placing deposits. From a credit risk management
perspective, it is the Group’s policy to enter into such transactions only with highly rated financial institutions and, accordingly,
the Group does not expect any counterparty to fail to meet its obligations.
49 P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
17. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT [continued]
Details of these deposits, which are all for terms of three months or less, are as follows:
At 31 December 2007
Balance Weighted average invested interest rate Currency US$’000 %
US Dollar ��,��1 4.9
Euro 717 1.�
Sterling 4�5 6.1
��,46� 4.8
At 31 December 2006
Balance Weighted average invested interest rate Currency US$’000 %
US Dollar �9,914 5.1
Euro 80� 1.0
Sterling �,69� 5.�
��,410 5.0
At �1 December �007 and �006, the Group did not have any interest bearing liabilities.
(d) Liquidity risk
The Group has significant cash balances on hand, and accordingly, no liquidity risk exists at present.
All cash and cash equivalent amounts are on demand, and all trade and other receivables and trade and other payables are due
within three months of the Balance Sheet date.
The Board monitors the availability of and requirements for funds in the Group. Surplus cash within the Group is put on deposit
in accordance with limits and counterparties agreed by the Board, the objective being to maximise return on funds whilst
ensuring that the short-term cashflow requirements of the Group are met.
(e) Interest rate risk
Cash and cash equivalents are invested primarily in U.S. dollars and euro. Exposure to interest rate risk on cash and cash
equivalents is actively monitored and managed. If interest rates rose by 0.5%, the Group’s loss for the year would decrease and
equity at year end would increase by approximately US$140,000.
(f) Currency risk
The US dollar and euro are the primary currencies in which the Group conducts business. The US dollar is used for planning and
budgetary purposes and as the presentation currency for financial reporting. The Group also has some costs, assets and liabilities,
principally relating to head office operations, denominated in euro and sterling.
50
Notes to the Financial Statements [continued]
17. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT [continued]
The Group manages the exposure by matching receipts and payments in the same currency and monitoring the residual net position.
The Group may, from time to time, with the approval of the Board, use derivative financial instruments to manage its exposure
to fluctuations in foreign currency exchange rates. No such instruments were in use at year end or prior year end. The Group
does not undertake any trading activity in financial instruments.
At the year end, the Group’s foreign currency balances were as follows:
Denominated Denominated in euro in sterling US$000 US$000
Trade and other receivables 6�1 –
Trade and other payables (1,��6) (141)
Cash and cash equivalents 717 4�5
1�� �84
If the US dollar increased by 5% in value against the above foreign currencies, the Group’s loss for the year would decrease and
equity at year end would increase by US$�0,000 approximately.
The exchange rates used in the preparation of the financial statements were as follows:
2007 2006 US$ per foreign currency US$ per foreign currency Average Year end Average Year end
Euro 1.�7 1.47 1.�6 1.�1
Sterling �.00 �.00 1.84 1.96
Company
The Company’s only assets are:
n available-for-sale financial assets
n amounts due from subsidiaries
See the disclosure above in relation to the fair value of available-for-sale assets.
The amounts due from subsidiaries are denominated in US dollars, are non interest bearing and are due on demand.
51 P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
18. SUBSIDIARY UNDERTAKINGS
The Company’s principal subsidiary undertakings at �1 December �007, all of which are wholly owned, are as follows:
Name Registered Office Activity
Petroceltic Investments Limited Styne House, Upper Hatch Street, Dublin �, Ireland �
Petroceltic Erris Limited Styne House, Upper Hatch Street, Dublin �, Ireland �
Petroceltic Ksar Hadada Limited Styne House, Upper Hatch Street, Dublin �, Ireland �
Petroceltic Isarene Limited Styne House, Upper Hatch Street, Dublin �, Ireland �
Petroceltic African Holdings Limited Styne House, Upper Hatch Street, Dublin �, Ireland 1
Petroceltic Elsa S.R.L. Lungotevere dei Mellini 45, 0019� Rome, Italy �
Key to activity:
1 Investment holding company
2 Oil and gas exploration and development company.
Each company’s registered office is located in the country in which it operates, except for Petroceltic Ksar Hadada Limited which
operates in Tunisia and Petroceltic Isarene Limited which operates in Algeria.
A full list of subsidiary companies will be filed with the Registrar of Companies.
19. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
As stated in the accounting policies, these are the Group’s and Company’s first financial statements prepared in accordance with
IFRS, as adopted by the EU.
The accounting policies set out on pages �6 to �0 have been applied in preparing the financial statements for the year ended
�1 December �007, the comparative information presented in these financial statements for the year ended �1 December �006
and in the preparation of an opening IFRS Balance Sheet at 1 January �006 (the Group and Company’s date of transition).
In preparing its opening IFRS Balance Sheet, the Company has adjusted amounts reported previously in its financial statements
prepared in accordance with Irish GAAP. An explanation of how the transition from Irish GAAP to IFRS has affected the Group’s
and Company’s financial positions, financial performance and cash flows is set out in the following tables and the notes that
accompany the tables.
In restating the Group and Company financial statements, the Group has availed of the following relevant exemptions in
accordance with IFRS 1, First-time adoption of International Financial Reporting Standards:
(i) The Group has deemed the foreign currency translation reserve at 1 January �006 to be nil.
5�
Notes to the Financial Statements [continued]
19. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS [continued]
Impact on Group financial statements
Reconciliation of loss for the year ended 31 December 2006
Effect of transition to Irish adopted Adopted GAAP IFRSs IFRSs US$’000 US$’000 US$’000
Revenue 1,�66 – 1,�66
Operating expenses (10,�16) – (10,�16)
Operating loss (8,950) – (8,950)
Finance income �,415 1,84� 4,�57
Loss before tax (6,5�5) 1,84� (4,69�)
Taxation (10�) – (10�)
Loss for the year (6,6�7) 1,84� (4,795)
Reconciliation of recognised income and expense for the year ended 31 December 2006
Recognised in equity
- gain in fair value of investments – �99 �99
- currency translation adjustments 1,84� (1,84�) –
- related deferred tax – (59) (59)
Loss for the year (6,6�7) 1,84� (4,795)
Total recognised income and expense (4,795) �40 (4,555)
5� P E T R O C E L T I C A N N U A L R E P O R T � 0 0 7
19. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS [continued]
1 January 2006 31 December 2006
Transition to Transition to
Irish Adopted Irish Adopted GAAP IFRS IFRS GAAP IFRS IFRS US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Assets
Non-current assets
Intangible assets 1�,147 – 1�,147 41,767 – 41,767
Investments 57 �5� 410 56 65� 708
1�,�04 �5� 1�,557 41,8�� 65� 4�,475
Current assets
Trade and other receivables 896 – 896 985 – 985
Cash and cash equivalents 19,476 – 19,476 ��,410 – ��,410
�0,�7� – �0,�7� �4,�95 – �4,�95
Total assets 33,576 353 33,929 76,218 652 76,870
Equity
Share capital ��,757 – ��,757 �6,191 – �6,191
Capital conversion reserve fund 51 – 51 51 – 51
Share premium 74,519 – 74,519 11�,079 – 11�,079
Share based payment reserve – 5,6�1 5,6�1 – 7,46� 7,46�
Fair value reserve – �8� �8� – 5�� 5��
Foreign currency translation reserve – – – – – –
Retained earnings (65,40�) (5,6�1) (71,0�4) (68,�66) (7,46�) (75,8�9)
Total equity ��,9�4 �8� ��,�06 70,955 5�� 71,477
Current liabilities
Trade and other payables 65� – 65� 5,�6� – 5,�6�
Non current liabilities
Deferred tax – 71 71 – 1�0 1�0
Total liabilities 65� 71 7�� 5,�6� 1�0 5,�9�
Total equity and liabilities 33,576 353 33,929 76,218 652 76,870
54
Notes to the Financial Statements [continued]
19. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS [continued]
The adjustments involved in the transition to IFRS were as follows:
n Under IFRS, investments are shown at market value, rather than at historic cost under Irish GAAP, with changes in the market
value taken to equity via the statement of recognised income and expense. The adjustment had the following effect:
l increasing investments by US$�5�,000 and deferred tax liability by US$71,000 at 1 January �006
l increasing investments by US$65�,000 and deferred tax liability by US$1�0,000 at �1 December �006
l increasing recognised income and expense for the year ended �1 December �006 by US$�99,000, net of related deferred
tax of US$59,000.
n The Group has determined that the functional currency of certain of its subsidiaries is, under IAS �1, the US dollar, rather
than under Irish GAAP when the functional currency used was the euro. In addition, the Group has availed of the transition
exemption available under IFRS �, and has deemed the foreign currency translation reserve at 1 January �006 to be nil.
Accordingly, the foreign currency translation reserve movement for the year ended �1 December �006 as reported under
Irish GAAP of US$1,84�,000, which arises principally from the holding of euro amounts in what is now a company with a
US dollar functional currency, is shown as a foreign exchange gain in the income statement.
n Under Irish GAAP, the equity reserve arising in respect of share based payment charges and foreign currency translation
reserve movements were included directly within retained earnings. Under IFRS, these reserves are shown separately. As
indicated above, no foreign currency transaction reserve has arisen since the date of transition to IFRS.
There are no changes to the reported cash flows arising from the transition to IFRS.
20. APPROVAL OF FINANCIAL STATEMENTS
The Directors approved these financial statements on �7 June �008.
55
Share Information
Shares in Issue
The number of shares in issue at �1 December �007 was 7�7,��7,818. The total number of share options and warrants
outstanding at �1 December �007 was 98,�6�,�80. The Petroceltic share price can be monitored at www.petroceltic.com.
Shareholder Profile
Petroceltic currently has 8,699 shareholders with the majority of shares held by institutional UK based shareholders.
The shareholding distribution at 4 June �008 is as follows:
Holdings Number of accounts Number of shares held
1-1000 �,076 1,�95,884
1,001-5,000 �,��8 8,484,094
5,001-10,000 1,1�8 8,890,184
10,001-100,000 1,846 60,99�,555
100,001-1,000,000 �14 90,767,4�7
over 1,000,000 87 566,797,664
8,699 7�7,��7,818
The geographical distribution at 4 June �008 is as follows:
Distribution Number of accounts Number of shares held
Republic of Ireland 5,114 170,99�,467
United Kingdom �,514 540,��8,�0�
Other 71 �5,997,149
8,699 7�7,��7,818
PETROCELTIC INTERNATIONAL PLC PETROCELTIC SHAREHOLDER HELPLINE
Styne House, Upper Hatch Street, Telephone: +353 1 4319825 (Ireland)
Dublin 2, Ireland Fax: +44 870 7036243 (UK)
Telephone: +353 1 4218300
Fax: +353 1 4218301
Email: [email protected]
Web: www.petroceltic.com